01 / 29 / 21

How Institutional Interest Is Contributing To the Current Bitcoin Boom

In January 2020, Bitcoin was trading at just around $7000. A year later, the price has soared to around $38,000. Various factors have driven the price of Bitcoin in that period. One of those factors is the growing interest in the use of BTC as a hedge against inflation. Another reason is the growing interest from leading companies such as Square, PayPal, and Microstrategy.

Institutional Interest in Crypto

On October 8, 2020, Square announced that it had bought 4709 BTC worth $50 million at the time. The investment represented around 1 percent of their total assets as of the end of Q2 2020. According to the announcement, Square said it invested because it believed Bitcoin could become a ubiquitous currency in the future. The company described the leading crypto coin by market cap as an instrument of economic empowerment.” Before the announcement, Square had been accepting Bitcoin payments since 2014.

Jack Dorsey, who is the CEO of both Square and Twitter, has always been a strong proponent of Bitcoin. In the past, he has claimed that crypto coins would become the single global currency by the end of 2030. Square began supporting Bitcoin trading via its Cash app in 2018.

Thus far, Square’s decision to add support for Bitcoin has worked out quite well. The company revealed that in Q1 2020, the revenue from its Bitcoin activity had grown to $306 million, which marked a 367 percent increase from the same quarter in 2019.

Another company that made headlines with its Bitcoin investment was Microstrategy. In August 2020, the company announced that it had bought $250 worth of BTC. It then bought an additional $175 million in BTC in September 2020.

According to the Microstrategy CEO Michael Saylor, they chose Bitcoin over gold since gold is mined, which decreases future returns, unlike Bitcoin, which is finite. He added that the company felt Bitcoin was a dependable store of value with long-term appreciation compared to holding cash.

Saylor said that the recent decision to relax its inflation policy pushed them towards Bitcoin. According to him, Microstrategy feels Bitcoin is less risky than holding cash or gold. Before the COVID19 crisis, the company held about $500 million in short-term US government policies. However, when yields began tumbling, they questioned their strategy. The CEO believes that inflation could surge to more than 20% annually, which would erode their purchasing power.

Another major company that has entered the crypto market is PayPal. In December 2020, the company revealed that it would begin supporting Bitcoin payments. By making it possible for its hundreds of millions of users to pay with Bitcoin, it is going to create new use cases for Bitcoin. Merchants will be more willing to accept crypto currency payments, which is great for Bitcoin.

All of the moves by these three major companies have played a role in the Bitcoin price surge. Other major firms will likely follow their template, which will drive institutional funds into crypto. In the medium and long-term, that is great news for the crypto sector.

Leave a Reply

Your email address will not be published. Required fields are marked *